Talk to Clark 1-4pm ET: (877) 87-CLARK or (404) 872-0750
advertisement
Looking for something on the site? Search for it here! Also see Clark's Greatest Hits
Apr 16, 2009 -- Carry a monthly balance on credit cards at your own risk
CLARKONOMICS/RIP-OFF ALERT: New data shows that defaults on credit cards have skyrocketed. Just under 9% of balances have been charged off as uncollectable debt as of February, according to Reuters. That's up from 5% last year.
Are you facing a credit card balance that you can't seem to handle? Is it being compounded by a job loss?
You may need to go on food stamps. Food stamps are a necessary social net, unlike the bulk of the $787 billion stimulus package…but that's a discussion for a political talk show!
You'll also need to triage your finances. Paying your car note may be a higher priority than your housing debt. After all, most Americans need a car to go to job interviews. Credit card debt should be the lowest item on your totem pole of financial obligations.
Moody's is predicting the rate of credit-card default will rise from the current 9% to 10.5% in the next year. And therein is the rip-off. If you carry a balance on your card, you'll be punished with higher interest rates to indirectly pay for those who default.
You've probably heard the calls on the show about this. The increases on interest rates tend to be anywhere from 10 to 25 points -- even if you are a good payer. In bankspeak, this is known as the "implementation of yield-enhancing actions."
And there is no limit on how high they can raise your interest rate if you carry a balance. The highest we've heard of is 40%, but 30% is very common too.
So it's more important than ever to trim your budget and throw every last dollar you can at outstanding credit card debt.
Unfortunately, Clark won't be able to answer any questions submitted via commenting. If you have a question, please try posting it to our message boards.
Hi Guys Did you know that American Express was given a "cease and desist" order in August 2007 for its American Express Bank International and fined $25 million. In addition they forfeited $55 million to the federal government. Go to the Financial Crimes Enforcement website and type in American Express. The feds found several hundred violations of the Back Secrecy Act. Alledgedly they may have laundered money for the drug cartels and the Black Peso market without filing SAR's(Suspicious Activity Reports). They sold their American Express Bank Limited assets in April 2008 (Google search WSJ) and then became a bank holding company again receiving 3 million in TARP funds. Verify it then tell the world Clark
Pay off your credit cards!
My wife and I made the mistake of using credit cards for several years and it got us in financial trouble. Slowly, we are getting out of it. We quit using the cards except for emegencies. Cash is always a better option!
Sorry
Sorry Dave and Brian. My mistake. You are absolutely correct and thanks for clearing it up. I was reading on one board and posting on another. Sorry, I apologize. You guys are right! Anyway, I still hold to my feelings on "retro active" interest rates.
Guess I am an Idiot.
JJ
reply to jj
JJ, i think it is you that is not getting the issue. This story is about credit card companies writing off 9% of credit card balances as uncollectable....meaning they are giving up trying to get back anything from the person no matter what interest rate was on the debt....they then raise rates on everyone else to offset the losses of the 9% they wrote off! Nowhere in this story is there any mention of retroactive interest rate hikes...that was a story weeks ago and granted the legislation that fixes it is slow in coming, but it is a totally different issue. read the story above...because of the writeoffs FUTURE rates will likely be in the 30-40% range...so people who carry balances, in the future, will be paying back the CC companies for the writoffs of deadbeats....being forced further into debt by retroactive rate hikes is a bad banking and i feel sorry for people affected by that cheesy tactic. but this story is just about writing off deadbeat debt and making the rest of us pay for it.
For people who borrowed $10,000 on a credit card for stuff they just couldnt do without, or save for, or finance at a reasonable rate, (not food, bills or nessesities, but luxury items they just wanted) I don't feel bad if they can't repay it at 8%....its just like the people who were greedy or stupid enough to get crazy loans for mortgages they knew were going to blow up in a couple of years...i think they should all stand up, say i spent irresponsibly, and sell off thier stuff and file bankruptcy.
easy to blame everyone else
If everyone was responsible and lived beneath their means by 10+%, saving that money for dire emergencies, beginning with their first job, probably 95% of personal bankruptcies could be eliminated. Instead, people spend 100% of their earnings or more, not saving one thin dime for emergencies and then wonder why they have financial problems when the inevitable emergencies arise like a layoff or short-term medical emergency. Just what do these people think should happen to them? I have lived my entire adult life and with the exception of when i went back to college to get my undergraduate and graduate degree at age 33 (using saved money without loans, grants or anything and working part time, I have saved 10-40% of my earnings every year. And I have never made over $175k per year and that has only been the last 10 years. there were plently of years when i made alot, I mean alot less. And I always saved. And I have a wife and raised 3 kids to be responsible adults. And none of this takes alot of brains..just willpower. So next time you whiners and complainers want to blame someone, just walk into the bathroom, look into the mirror and give him/her holy hell...and resolve to change starting right now.
Punishment for credit card users
I just don't think that people like Dave are getting the issue. No one is looking for a bailout or "writeoff" It's really simply, if someone charged $10,000.00 on their credit card and when they made those charges the interest rate on their card was 8%. Now the banks want to come back to the consumer and raise the interest rate on that same $10,000.00 in charges to 30%.
How is that a bailoout or writeoff or "rewarding irresponsible behavior? They still have to pay it back, just at the interest rate that was in effect at the time of the charge, not the new one. No one loses or gives anyway anything except the Bank, who does lose, they just don't get the extra 22% profit and why should they? I also don't understand what "spending above your means has to do with the issue of wheater or not a bank should be allowed to retro actively increase your interest rates on previous charges.
The only thing that raising interest rates "retro actively" does is inflict more "punishment" on the consumers that used their cards and carried a balance. Seems to me, that is all that people like Dave, Brian and JD are looking for. Some sort of extra punishiment for all those people who "spent above" their means. Right vs wrong and whats good in the long run for ALL of us, good credit, bad credit is the issue.
Speaking of rewarding "irresponsible behavior", I don't see one post that "rewarding the irresponsible banking industry is exactly what the bailout did...with our money anyway. We just gave it to the banks to help them stay in business.
Dave, one more thing, you stated that "lenders won't touch an irresponsible borrower". The lenders aren't lending to anyone, not even other banks. People need to stop being so focused on "punishing" people all ready in debt and be more concerned with what our Govenerment,Wall Street and The Federal Reserve have done with our tax money and how it's destroyed our economy. No, it's not a political issue it is a financial one.
rewarding irresponsibility
the issue to me is that they would write off 9% as uncollectable and raise the rates for responsible credit card users...its like the mortgage write downs, and the bank bailouts...they are rewarding irresposible behavior by giving a bailout or writeoff. I thought when someone spent above their means that when it caught up to them they had to sell off their stuff to pay back their debts or go bankrupt...what happened to bankruptcy? Once people go bankrupt they will have a hard time for 7 years getting a loan or credit card they cant afford because responible lenders won't touch an irresponsible borrower....you would think that tons of peple would go bankrupt in this economy but instead they are crying "the economy is at fault, bail me out." "i bought more house than i could afford and ran up my credit cards buying junk i couldn't save and pay for, and then I lost my job...it's the economies fault" BAH bunch of whiney babies looking for a handout...i say make them sell off all their stuff and go bankrupt, start over and learn from their lesson...that way responsible people don't foot the bill!!
Give be a break.....
Brian, JD.... I just don't get your position? As Shawn said, "count your blessings".
Why is it that everytime I read post on this issue (raising rates) we get posts like "you got what you deserved" or "anyone who carries a cc balance is and "idiot"? I don't think that anyone that is or has posted that the banking industry needs to be controled has advocated running up cc debt and going out and spending more than you earn on buying big screen TVs, ect, ect.
I for one totally agree that carrying a cc balance is not a good idea, but look at the big picture.... What's done is done, with 2 Trillion dollars in Consumer Credit card balances outstanding there has to be some control so it can be paid back. If someone can't pay their balance off (an "idiot" or not) at 7%, how are they going to pay it off at 30%? End result is more default,(as all cc debt is unsecured)and higher interest rates on those still left standing, which increases the risk of even more default. It's an endless cycle unless it's stopped.
JD, yes we have become a nation of "consumer spenders", bad idea for the most part, but look what happen to the economy when consumer's stopped spending, business closing, people losing jobs. It's a cycle that can't be stopped by just throwing 12 Trillion dollars at it by the Feds and US Government. They are trying to fix the problem from the Top down, it has to be fixed from the bottom up.
Yes, JD and Brian, everyone's an "idiot" except all you smart guys. However, as the economy gets worse (not better) because of the banking issues, we all will be without credit cards one day, with no real economy or jobs, the 10% savings you advocate will be worthless as the dollar devalues, and we can all go back to being farmers and using barter.
I think that most of us that are posting against the banking industry practice are not "pro" debt or credit cards, it just that allowing the banks to retro actively increase rates is going to create a financial disaster for all of us unless it's stopped. Every aspect of our consumer lives is protected by the Government, Ever heard of the FDIC, FDA,UL on and on. You can't buy a coffee maker in Walmarts that isn't okayed by a government agency. If there wasn't an FDA, would we all be "idiots" if we took medication that was unregulated? Because taking the risk was a better option than not. Or bought that coffee maker and the house burned down? Why should the banks be any different in this situation?
Count your blessings
Okay JD and Brian, while correct in some areas you dont realize that it is a necessity to use these evil cards to some people. What are the people who lose their jobs supposed to do? They supposed to sit on that credit card and starve? That what you would do?? Food stamps only goes so far. Clark can sit behind his desk and pretend to have the answers to how everything in the world operates, from banks to the auto industry to his rediculous proposals on 3 day delivery for the post office. Instead why dont you hotshots just count your blessings that you dont need to carry a balance and go from there. I know I do! While yes the majority of the people had a buy now pay later mentality, there are quite a few who did not but their hand is forced.
Credit slavery is voluntary, so line em' up.
I agree with Brian: fools carry balances knowing full well that the bank has the power to raise the interest rate and junk fees at will.
Americans don't need new laws to keep two-bit pirating Banks at bay. Americans need to flex their intellectual muscle instead. If everyone saved 10% of their income, we would NEVER, EVER have to resort to using plastic for anything ever again. We have become a nation of comsumers and spenders. We need to become producers and savers instead, and I honestly believe this message has gotten through to a lot of people during this recession.
Who can fault banks for this problem, when people voluntarily line up for this stuff? There's one born every minute.
who is worse?
the credit cards and their banks are thieves and villians. but those who carry credit card balances are idiots. So take your pick who to blame here. After all, only an idiot would borrow money when the lender can re-set the terms at any time for any reason.
The problem is that the banks are allowed to get away with increasing the interest rate retro-actively. It would be bad enough if they could just do it going forward. But, if someone can't pay the minimum payment at 7%, how are they going to pay it at 30%. The end result is just more default. Another part of the problem is that Congress gave the CC/banks an 18 month window from inacting the new Credit Card laws. This type of abuse won't be allowed next July, but, by then the banks will already have bankrupted a good percentage of the population. Congress needs to immediately enforce the Consumer Credit Card rights they passed 6 months ago.
